Why must Phu Tai close many factories?

However, according to Phu Tai SJC, this is a restructure of the company's member units.

Closure of Factories

Phu Tai's Board of Directors approved closing the Dong Nai Stone Processing Factory. Previously, it was announced that the Granite Processing Factory in Khanh Hoa Province will also be shuttered. This decision follows the closure of Phu Tai Joint Stock Company's Dien Tan Stone Processing Factory Branch (Khanh Hoa) and Basalt, Granite Processing Factory Branch (Dak Nong) in April 2024.

Thus, in addition to the termination of the Stone Mining Enterprise in Dak Nong, a branch of Phu Tai Joint Stock Company, for the same reason of restructuring member units, Phu Tai will liquidate and dissolve a number of factories, mostly in the stone mining and processing sectors.

According to Phu Tai's financial report, as of March 31, 2024, the company owned 18 subsidiaries, 3 associate firms, and 13 associated entities. The firm is involved in four major business areas: wood and stone exploitation and supply, Toyota vehicle services, construction, and real estate.

Phu Tai is well-known in the market for its stone mining and processing operations, which accounted for more than 31% of the company's revenue at the end of 2023. However, according to Phu Tai, this is a mineral exploitation business that is strongly reliant on national resource management and sector-specific enterprise operations. Vietnam continues to face challenges in managing its natural resources, with a poor resource management index resulting in limit ations on mining activity.

"Mining expenses are a major concern for most companies in this industry, including Phu Tai. Inflation, government policies on basic building and resource exploitation, as well as geopolitical instability or importing nations' protectionist policies, can all drive up costs. According to Phu Tai's assessment, these variables might have an impact on the company's growth ambitions.

Restructuring is Inevitable

At the end of Q1 2024, Phu Tai's business activities generated net revenue of VND 1,437 billion, a small rise over the same time last year. Revenue structure includes: revenue from wood products in Q1 2024 increased by 22% to VND 902.7 billion, accounting for 63%; revenue from stone products increased by 1% to VND 391.5 billion; revenue from Toyota car sales decreased by 53% to VND 107.7 billion compared to the same period last year; and so on.

Compared to the same period last year, the company's pre-tax profit increased by over 45%, reaching around VND 110 billion, owing to the recovery of income from stone and wood (which accounted for 80%). Although inventory has decreased, receivables from customers at the end of Q1 totaled VND 801 billion, indicating that market demand continues to pose many risks with unpredictable economic or policy consequences, and the ability to manage debt collection to avoid bad debt also needs to improve.

In reality, Phu Tai is focused on assuring the supply of raw materials for long-term growth, with huge stocks of owned stone mines that provide ongoing production capacity. Furthermore, since 2023, Phu Tai has reinforced its production restructuring to streamline, employing production stages that are suited for the shrinking market scale.

Notably, with the domestic industry picture dependent on the real estate market and exports, reliant on non-essential consumer spending, restructuring to avoid horizontal investment and the risk of capital entrapment is necessary, especially in October 2023, Phu Tai faced a scandal where Noble House Home Furniture LLC - a partner buying exported wood products - filed for bankruptcy, forcing the company to set aside a provision of VND 42.6 billion for nearly VND 61 billion.

In 2024, Phu Tai expects a net revenue of VND 6,175 billion, a 10% increase over 2023, with the wood sector earning VND 2,948 billion (up 6%) and stone VND 2,337 billion (up 31%). Post-tax profit is estimated to be VND 370 billion, a 43% rise. The corporation also intends to pay a dividend of at least 25% (in cash or shares, depending on the scenario), and has recently declared a 10% dividend payment. This information is comforting for investors, especially because the significant closure of stone industry enterprises is still not completely understood and may continue.

Regarding Phu Tai's projection, Vietcap Securities Company believes that the interior wood industry would be the primary growth driver in 2024, while the stone sector confronts stiff competition. This company's forecasts for this year remain bright, but lower than previously expected. Vietcap anticipates that projections may be revised upward in the medium future.